In its annual report on Morocco, Moody's Investors Service says its Ba1 government bond rating reflects a 10-year trend of improving general government debt ratios and significant structural reforms.

"Morocco's debt ratios are higher than the average for its rating category and constitute the main reason preventing it from obtaining an investment-grade rating," said Moody's Vice President Sara Bertin, author of the report.

The government bond rating serves as a basis for Morocco's Baa2 foreign currency ceiling and Moody's assessment of a diminished likelihood of a payments moratorium in the event of a government default.

"While the volatility of GDP and the government's fiscal stance have in the past capped the sovereign ratings, positive changes have been taking place in both these spheres," said Bertin. "Improved resilience is mainly driven by the expansion of non-agricultural GDP growth, which has been rising as a result of structural and industry-specific reforms implemented by the government."

She said the increased resilience of the Moroccan economy became obvious in 2005 when the country's real GDP grew at around 2.4% despite having been subject to numerous exogenous shocks, including high oil prices, the elimination of trade quotas under the WTO Agreement on Textiles and Clothing (ATC), adverse weather conditions, and the effects of desert locust infestation.

"GDP growth in 2006, which was around 8.1%, is likely to remain strong in 2007," said Bertin. "Over the medium-to-long term, we expect positive trends to continue as the increased resilience of the Moroccan economy is linked to structural changes."

While the government uses subsidies in areas including oil-derived products to support its social policy programme, she said the tax base has strengthened significantly on the back of economic development. The fiscal deficit should narrow to 3.3% of GDP in 2007.